I want to touch briefly on four points, with
the main goal of stimulating discussion.
The four points are the role of economics in
peace and security; the new security threat;
the technology front; and China.

As an economist and a diplomat, I
believe economic policy has a huge role in
peace and security; although it’s not one
that my political officer colleagues in the
State Department often saw. Even today
I think too many European ministries of
foreign affairs are extremely weak in economic
policy to the detriment of their ability
to conduct diplomacy and achieve the missions
that they undertake.

It’s actually really timely to have this discussion
in this place for a couple of reasons:
First, this happens to be the 70th anniversary
of the Marshall Plan. In fact, right now
in Berlin, Chancellor Merkel and Dr. Kissinger
are at a GMF event talking about this
70th anniversary. If you don’t want to listen
to me, we can probably boot up a computer
and watch a live stream of them instead.

It’s also the 60th anniversary of the Treaty
of Rome and the creation of what would
become the European Union, which, as I like
to remind everyone, was created to end war.

Both of these are economic policy projects.
Their purpose is to promote growth
and to end war through economic integration.
The underlying principle behind both is
the belief in the dignity of the individual and
the political and economic systems that
derive from that: democracy and a marketbased
economy.

To me, they’ve been resounding successes.
Both of those economic policies
have brought peace and security, as the
Soviet economy imploded and the Berlin
Wall fell.

In the 1990s, the application of these
US and European economic policies was
expanded to the Warsaw Pact countries,
and there were efforts even then to further
expand their application to Russia. Those
were the right responses, I think, exemplifying
the use of economic policy as an instrument
for peace and security.

But this path ended, more or less, in the
early years of this century for two main reasons:
one, security, and two, economics. On
the security front, 9/11, our response to it, the
ensuing wars, and the rifts that developed
within Europe and between Europe and the
United States, have taken time to patch up.

And then, after the blows our economies
took in the wake of the 2008 financial crisis,
there has remained a sense of questioning
of some of the principles that actually led to
our resounding success. This can be seen
in the vote on Brexit and the election of
Mr. Trump, which set the stage for today’s
security issues.

What are our current security issues?
There’s Russia, China, North Korea. and
the nuclear threat; there’s counter-terrorism;
there are cyber attacks. All these
threats are real and they’re important. But
I’d like to propose the possibility that the
biggest security threat is us and a weakening
belief in ourselves.

The Russians have done a very good job
of projecting soft power. But that they should
have an impact on our broader political system
exposes an insecurity within it. This insecurity
feeds policies, and in that way may become a bigger threat. There’s a broad
underlying sense that the United States has
been taken advantage of over the last 70
years. But if we’ve been “taken advantage
of,” it’s because we’ve wanted to be. It was in
our interests. It was in our economic interest
and our national security interest to be open
to the world, to take in imports, to help others
grow, to encourage the growth of Europe.

This insecurity stemming from a misunderstanding
is leading to economic policy
that is more about building walls than opening
doors. When the administration uses
national security as the underlying reason
to protect our steel industry, this is an owngoal.
Like the own-goal of withdrawing our
signature from the Trans-Pacific Partnership,
it gives the Chinese and every other country
the legitimacy to do precisely the same.
This issue is dividing the United States and
Europe, including the UK, right now.

Similarly, Mr. Trump’s insistence on each
member of NATO contributing 2 percent of
GDP also is based in the belief that we’ve
been taken advantage of.; that the US has
been spending all this money on our military
and our capabilities, and no one else
is spending their money, and by God, we’re
not going to have this anymore; it’s going to
change. I think that’s a direct quote. Which
has led Angela Merkel to question whether
or not the United States is going to be a reliable
ally. And that, I think, is a tremendous
cost to our security.

Moreover, I would argue, getting to my
third point, that it does not take into account
the changing nature of what you would call
Transatlantic defense and the Transatlantic
defense industries. The Third Offset Strategy,
which was announced by Chuck Hegel,
then Secretary of Defense, and carried forward
by Ash Carter, is based on the idea
that you need to have superior technology
in order to overcome the numerical advantages
of your opponents. In talking about it,
the DoD people understood that this strategy
would change the nature of what they
were meant to do. They could no longer
just rely on the traditional defense contractors
who make the big tanks, anti-tank missiles,
and aircraft carriers. All those are still
important; but more important is technology.
Understanding the importance of technology,
whether it’s Artificial Intelligence, Big
Data analytics, or autonomous guidance,
led DoD to understand that it needed to
have relations not just with new companies
in the United States, technology companies
that they hadn’t really known before at DoD;
but also that they had to have a different
relationship with our international partners.
If you pass a procurement act that says only
buy American technology, you’re not going
to get the best technology, and you’re not
going to be able to achieve your objective of
technological leadership.

That understanding created an opening
for more collaboration across the Atlantic with
our NATO and European allies. I personally
think that this makes sense. I’ve not heard
this administration use the words, but I have
a funny feeling that, even as they’re increasing
their budget for typical armaments, the
importance of technology and the Third Offset
Strategy is also accounted for. Whether
or not the administration will be able to follow
through, in particular in terms of collaboration
with the private sector in Europe as well as
the private sector in the United States, I don’t
know. At the same time I feel that the NATO
industry forum and other initiatives designed
to foster better collaboration between NATO
and industry are too concentrated still on traditional
industries. I’m not sure they’re succeeding
in building out from there sufficiently.

Additionally, with too much emphasis on 2
percent spending on weapons systems, the
Trump administration is distracting people
from an analysis of the actual threats we’re
facing and a response to them. The actual
threats are more related to cyber security
and terrorism than they are to an invasion
across the Suwalki Gap [where Russia might
invade Poland]. A lot of the Third Offset Strategy
was directed at Russian activities in the
Ukraine and the need to have better, shall
we say, intelligence and reconnaissance.
Those are more important than some of the
other issues. Whether or not the administration
will allow money spent on cyber security
and cyber defense to be counted toward the
2 percent goal, I don’t know.

This brings me to my last point: China
is a significant military defense issue for
the United States, for the Japanese, and
for our other allies in Asia. People that I
know and like, like Chas Freeman, a former
ambassador for whom I worked when I
was in the State Department, say that we’re
overstating the Chinese threat because the
Chinese tend to project themselves just
so far and not beyond that. However you
interpret the Chinese intentions, there’s no
question that the Chinese are in fact exercising
the Third Offset Strategy in the sense
that they are trying to acquire commercially
available, private sector technologies, and
they’re doing a very good job of it.

A detailed review of Chinese acquisitions
of American technologies through stateowned
enterprises was commissioned by
the previous Secretary of Defense and actually
delivered in March of 2017. The Japanese
embassy here in Brussels brought this
to my attention, saying, “We are seeing European
technologies on PLA [the People’s Liberation
Army] ships and on PLA planes, and
we’re concerned.” They’re concerned that
the Europeans don’t have something like
CFIUS [The Committee on Foreign Investment
in the United States] to guard against
the export of high technologies. There is a
big policy debate on the question of whether
or not the Europeans, or the United States
and Europe working together, need to
address the issue of Chinese acquisition of
technologies in the private sector.

I’m concerned, too. It is too easy for it
to turn into a competitive, reciprocity-based
thing that can be directed against foreigners
generally, not just against potential threats.
There are a lot of people in Europe who consider
GAFA--Google, Apple, Facebook, and
Amazon-- a potential threat. The European
Commission’s move to adjust the way large
US firms, especially tech companies, report
their taxes within the EU addresses competitiveness
more than security, and I think
that’s an issue that needs to be discussed.